The following exchange between former New Jersey Govs. Brendan T. Byrne and Tom Kean took place in a teleconference last week.

Q: What were your reactions to Gov. James E. McGreevey's State of the State address?

BYRNE: Overall it was an excellent speech. But we're the wrong ones to ask because we each delivered eight of those and, after each, we heard from constituents who said we didn't mention something or didn't talk enough about it. So I have great sympathy for him, for things he might have said. He didn't talk about progress he might have made in his proposal for a state university system, for instance.

KEAN: The emphasis on sprawl was welcome. We're already the most densely populated state, and without a plan to grow properly we'll end up with a state our children won't want to live in. When I was governor, we originated a state master plan. Maybe now we'll see it carried out.

BYRNE: And we need to flesh out the anti-sprawl proposal. If you say we don't want sprawl, you've got to live in Newark, that initially gets a laugh. You have to say we're going to make Newark a university city, we're going to have a redevelopment area between Sacred Heart Cathedral and Penn Station. You have to say things that will give your plan more credibility.

KEAN: And we do have to take areas and rehabilitate them. It's not just about turning outlying areas into parkland. Those who want to live close to jobs should be able to do so.

BYRNE: We have an opportunity with the pharmaceutical houses. Other states that have pharmaceutical endeavors have packaged them nicely, and we have that opportunity in New Jersey.

Q: Do you expect substantial progress in malpractice and auto insurance reform?

KEAN: Auto insurance reform is very difficult to do, because you have to take on the trial lawyers. The politicians have always backed off on that one, on limiting liability.

BYRNE: But one issue Governor McGreevey raised is that drivers are being made to pay for too many bells and whistles on their insurance policies. If somebody really studied what we can do without, we could substantially lower premiums.

KEAN: It's also very important to convince the insurance companies this is a state where they can do business. So many are leaving or talking of leaving. If that happens, we won't be able to get insurance at any price.

BYRNE: That's a delicate issue, though. I remember, in 1977, going to college campuses and asking kids if they were willing to ante up an additional $700 to keep Geico in the state.

KEAN: In those days you could offer alternatives. Now we're talking about the alternatives leaving the state.

BYRNE: There's no question, however, that the insurance companies are not making money.

KEAN: And insurance will never be cheap here. There are too many cars per square mile, and they keep bumping into one another. There also are too many lawyers per square mile.

BYRNE: They're bumping into one another, too.

Q: McGreevey gently raised the possibility of raising taxes, which would seem to violate the premise of the last decade that raising taxes is political suicide. But are there certain circumstances in which he can sell the public on increases es sential to the state's survival?

KEAN: I don't think the governor has to steer clear of every tax. But if you look at states around us, you see there is very little headroom left to raise our major taxes if you intend to compete. The Assembly speaker's idea of increasing taxes on the rich doesn't help. They're the most mobile of all the state's residents. They can change their residence very fast. So that is a very foolish idea, because it will drive jobs and people out of the state. But there's gasoline and other taxes you can raise without changing New Jersey's competitive position.

BYRNE: You're right about how easy it is for the rich to move, and both of us know people who have. They come back and have lunch with us once in a while.

KEAN: Sure. These days, with computers, they can do business from anywhere. If you overtax them, they're gone - and you've lost the income tax you were getting from them. It sounds good politically, but it doesn't work.

BYRNE: You can't seem to get a consensus on taxing things we buy on the Internet, but Internet sales are a very legitimate source of income.

KEAN: And it's very unfair to the average store that if you buy a gift from them you pay a tax, and if you go to the Internet, you don't. So you're right, that's a source of revenue the state ought to be exploring.

BYRNE: In the meantime, people who object to raising the sales tax are buying daily lottery tickets and losing a fair amount of money, and not complaining.

KEAN: When I was governor, I found the lottery was countercyclical. In a recession, when income was going down, the lottery income went up. I guess they buy that ticket and hope their ship comes in.